The following discussion of our financial condition, results of operations, liquidity, and capital resources should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto included in this report as well as our Annual Report on Form 10-K for the year endedDecember 31, 2019 . Our third quarter represents the three-month period endedSeptember 30 and our first nine months represents the nine-month period endedSeptember 30 . Unless otherwise noted, all currency amounts are stated inU.S. dollars. The reference to a "Note" herein refers to the accompanying Notes to Unaudited Condensed Consolidated Financial Statements contained in Item 1 "Financial Statements." Overview We are a geographically diversified supplier providing products, as well as rentals and services. We operate our business through two reportable segments: Fluids Systems, which primarily serves the oil and natural gas exploration and production ("E&P") industry, and Mats and Integrated Services, which serves a variety of industries, including electrical transmission & distribution, E&P, pipeline, renewable energy, petrochemical, and construction industries. Our operating results, particularly for the Fluids Systems segment, depend on oil and natural gas drilling activity levels in the markets we serve and the nature of the drilling operations (including the depth and whether the wells are drilled vertically or horizontally), which governs the revenue potential of each well. Drilling activity levels, in turn, depend on a variety of factors, including oil and natural gas commodity pricing, inventory levels, product demand, and regulatory restrictions. Oil and natural gas prices and activity are cyclical and volatile, and this market volatility has a significant impact on our operating results. While our revenue potential is driven by a number of factors including those described above, rig count data remains the most widely accepted indicator of drilling activity. Average North American rig count data for the third quarter and first nine months of 2020 as compared to the same periods of 2019 is as follows: Third Quarter 2020 vs 2019 2020 2019 Count % U.S. Rig Count 254 920 (666) (72) % Canada Rig Count 47 132 (85) (64) % North America Rig Count 301 1,052 (751) (71) % First Nine Months 2020 vs 2019 2020 2019 Count % U.S. Rig Count 477 984 (507) (52) % Canada Rig Count 89 132 (43) (33) % North America Rig Count 566 1,116 (550) (49) %
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Source: Baker Hughes Company During 2019,U.S. rig count steadily declined, exiting the year at 805 active rigs, a 26% decline from the end of 2018. DuringMarch 2020 , oil prices collapsed due to geopolitical events along with the worldwide effects of the COVID-19 pandemic. As a result, averageU.S. rig count in the second quarter of 2020 declined 50% from the first quarter of 2020 and further declined another 35% in the third quarter of 2020 from the average level in the second quarter of 2020. After reaching a low of 244 in mid-August, theU.S. rig count has since increased to 296 as ofOctober 30, 2020 . TheCanada rig count reflects both the current weakness in oil prices as well as normal seasonality for this market, with the highest rig count levels generally observed in the first quarter of each year, prior to Spring break-up. We anticipate that market activity will continue to modestly improve from current levels, although the ongoing impacts of the COVID-19 pandemic and an uncertain economic environment that will likely persist through the remainder of 2020 and into 2021 make the timing and pace of recovery difficult to predict.Outside of North America , drilling activity is generally more stable as drilling activity in many countries is based on longer-term economic projections and multi-year drilling programs, which tends to reduce the impact of short-term changes in commodity prices on overall drilling activity. However, operations in several countries in the EMEA region experienced activity disruptions and project delays beginning inMarch 2020 and continuing through the third quarter of 2020, driven by government-imposed restrictions on movements of personnel, quarantines of staffing, and logistical limitations as a result of the COVID-19 pandemic. We currently expect these disruptions and project delays will continue to impact international activity levels through the remainder of 2020 before beginning to gradually recover in early 2021, although the impact from the duration and magnitude of the ongoing health pandemic and related government responses are very difficult to predict. 16
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In response to these market changes and reduced demand for our products and services as a result of the decline in oil prices and the COVID-19 pandemic, we initiated a number of actions late in the first quarter of 2020 and continuing throughout 2020 aimed at conserving cash and protecting our liquidity, including: •The implementation of cost reduction programs, including workforce reductions, employee furloughs, the suspension of the Company's matching contributions to itsU.S. defined contribution plan, and temporary salary reductions effectiveApril 1, 2020 for a significant portion ofU.S. employees, including a 15% cut to the salaries paid to executive officers (with a further 10% cut for the CEO effectiveAugust 12, 2020 ) and the annual cash retainers paid to all non-employee members of the Board of Directors; •The initiation of additional actions to further reduce the operational footprint of the Fluids Systems business inU.S. land, to better align our cost structure with the lower market activity levels; and •The elimination of all non-critical capital investments. As part of the cost reduction programs, we have reduced our global employee base by approximately 620 (28%) in the first nine months of 2020. For the first nine months of 2020, we recognized$18.0 million of total charges primarily for inventory write-downs, severance costs, fixed asset impairments, and facility exit costs, with$17.4 million in the Fluids Systems segment and$0.6 million in the Corporate office. The$17.4 million of Fluids Systems charges includes$10.0 million for inventory write-downs,$3.3 million in severance costs,$3.0 million in fixed asset impairments, and$1.1 million in facility exit costs and other. While we have taken certain actions to reduce our workforce and cost structure, our business contains high levels of fixed costs, including significant facility and personnel expenses. We continue to evaluate under-performing areas as well as opportunities to further enable a more efficient and scalable cost structure. In the absence of a longer-term increase in activity levels, we may incur future charges related to further cost reduction efforts or potential asset impairments, which may negatively impact our future results. Segment Overview Our Fluids Systems segment, which generated 76% of consolidated revenues for the first nine months of 2020, provides customized drilling, completion, and stimulation fluids solutions to E&P customers primarily inNorth America andEurope , theMiddle East andAfrica ("EMEA"), as well as certain countries inAsia Pacific andLatin America . International expansion, including the penetration of international oil companies ("IOCs") and national oil companies ("NOCs"), is a key element of our Fluids Systems strategy, which has historically helped to stabilize segment revenues while North American oil and natural gas exploration activities have fluctuated significantly. Revenues fromIOC and NOC customers represented approximately 43% of Fluids Systems segment revenues for the first nine months of 2020 compared to approximately 31% for the first nine months of 2019. In addition to our international expansion efforts, we have also expanded our presence in the deepwaterGulf of Mexico , capitalizing on our capabilities, infrastructure, and strong market position, as well as through product line extensions into adjacent product offerings, including completion fluids. Revenues for drilling and completion fluids from offshoreGulf of Mexico increased to$37 million for the first nine months of 2020 compared to$32 million for the first nine months of 2019. In response to the increasing market demand for cleaning products following the COVID-19 pandemic, we began leveraging our chemical blending capacity and technical expertise to begin producing disinfectants and industrial cleaning products in the second quarter of 2020. After initial production start-up in the second quarter of 2020, revenues from these products tripled in the third quarter of 2020 to nearly$3 million . Following the third quarter 2020 installation of required packaging equipment for these products, we plan to continue to ramp up production over the next several months. Our Mats and Integrated Services segment, which generated 24% of consolidated revenues for the first nine months of 2020, provides composite mat rentals utilized for temporary worksite access, along with related site construction and services to customers in various markets including electrical transmission & distribution, E&P, pipeline, renewable energy, petrochemical, and construction industries acrossNorth America andEurope . We also sell composite mats to customers around the world. 17
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The expansion of our rental and service activities in utility infrastructure and
other non-E&P markets remains a strategic priority for us due to the magnitude
of this market growth opportunity, as well as the market's relative stability
compared to E&P. The Mats and Integrated Services segment rental and service
revenues from non-E&P markets was approximately
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